Carry Trade Logic

Just checking if my logic is sound…

Over a six month period, here are the details:

BRL/USD spot rate = 5.3588
USD 6-month rate = 1.23%
BRL 6-month rate = 5.22%
Expected BRL/USD spot rate in 6 months = 5.4917

The question asks if you should accept or reject the carry trade, showing calculations.

I got to the right answer using this logic:

Spot Rate Return: 5.417/5.3588 - 1 = 2.48%
Carry Trade Return: (5.22%/2) - (1.23%/2) = 1.995%
Holding Period Return = -0.49%, therefore reject carry trade.

Are there flaws to this approach?

Why USD, not PAB?

Wherever did you get such a elegantly written question?

Yes: your approach is sound.

Lol, from a reputable source.

Bought your mocks last year, but couldn’t write. Will buy this year as well.

Thanks for the feedback.

Lol, USD just makes more sense in my head, don’t ask me why.